Transforming Liability into Opportunity: The Essential Guide for Employers on Health Plan Fiduciary Duties | Lockton

Most of us know that a fiduciary plays a key role in managing investments, especially in retirement plans. Recently, though, the concept of fiduciary responsibility has expanded to include health and welfare benefit plans. This shift isn’t just a trend; it’s a necessity for employers.

Why does this matter? First, plan costs keep rising. Employers are legally obligated to manage these costs effectively because it’s not just about money—it’s about the promise made to employees and their families. Lately, many companies have faced lawsuits for not fulfilling these obligations.

With increased scrutiny under the Employee Retirement Income Security Act (ERISA) and new rules from the Consolidated Appropriations Act of 2021 (CAA), companies need to show that they are making wise choices in managing health plans. They must demonstrate that costs are reasonable and that they’re truly looking out for their employees’ interests.

Interestingly, a report from the Department of Labor reveals that in 2024 alone, they closed 729 civil investigations connected to employee benefits, resulting in over $1.3 billion recouped for employees. This reinforces the importance of proper fiduciary governance.

However, some employers aren’t prioritizing this responsibility. According to Lockton’s National Benefits Survey, while many say they’re evaluating their fiduciary role, only 3% are actually conducting regular committee meetings to discuss decisions about their plans. This lack of action could expose them to costly legal battles.

## The Cost of Ignoring Responsibility

For years, fiduciary responsibilities focused mainly on retirement plans, but the rise in healthcare costs changed that. Lawsuits like those against big companies illustrate the heightened risks—firms like Johnson & Johnson and Wells Fargo have been challenged for failing to manage health-related expenses reasonably. Litigation often stems from issues surrounding pharmacy benefit managers (PBMs), who play a crucial role in controlling drug costs.

A staggering 30% of a health plan’s budget goes toward pharmacy benefits. The top three PBMs dominate over 80% of this market, complicating efforts for employers to ensure transparency. It’s essential for employers to assess PBMs thoroughly—even seeking help from independent experts can help them navigate these complexities.

## Moving Toward Transparency

Transparency is key. Employees need to know what they’re paying for and what they’re receiving in return. This is about more than just compliance; it’s about ensuring that plan participants get the best value for their contributions.

ERISA established five core fiduciary duties that still apply today:

1. Act solely in the interest of plan participants.
2. Provide plan benefits and manage expenses privately.
3. Perform duties prudently and carefully.
4. Diversify assets to minimize large losses.
5. Adhere to plan terms.

The Affordable Care Act and CAA have pushed for improved transparency, giving employers more tools to monitor costs and quality of care.

## A Chance for Improvement

If employers take their fiduciary duties seriously, they can not only avoid legal trouble but also improve their employee care. Effective fiduciary governance may lead to cost savings and enhanced benefits.

Rather than viewing these responsibilities as burdens, employers should see them as opportunities to foster trust and create a better environment for everyone involved. Fortunately, resources exist to guide employers through these complexities and help them implement strong fiduciary governance processes.

By taking steps now, companies can create a cost-effective, transparent, and supportive health plan that truly benefits their employees.



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